In the past two years I have written many posts about how I thought Google Inc. (NASDAQ: GOOG) was overvalued. A lot of analysts' predictions over this time would make quite a piece of fiction, and I have taken a lot of flack from the Google dreamers for saying so.
Today, however, I think the investing masses have it all wrong. Not that I think Google will see another meteoric rise any time soon, but as usual the pendulum can swing wildly and today that may be the case. It seems that a little bad news is causing a mighty stir.
UBS cut its price target on Google Inc. after U.S. paid-search data for January showed Google's sponsored clicks, the basis for its advertising revenue, fell 7 percent sequentially. Google's January sponsored clicks were flat on a year-over-year basis, according to comScore. "While Google's search volumes were decent (up 39 percent year-on-year), actual paid clicks were flat...continuing a decidedly negative trend," analyst Benjamin Schachter said in a note. The analyst cut his price target on the stock to $590 from $650, while continuing to rate it 'buy.'
So UBS analyst Schachter cuts his price target. But he still rates the stock a buy -- so why is everyone running for the exits? The stock is down about 7% so far today from yesterday's close of $486.44, to about $458 and wavering. That after losing $21 yesterday.
Google still has healthy profit margins and no debt. I will be watching its return on equity and return on invested capital going forward because many of the other metrics are still too high or hard to interpret. The downside momentum will probably not stop until some major Wall Street players make a play for this stock.
It will not be the retail investors who step in front of this beast. For those who want to own this stock, the old dollar cost averaging method might be the only way right now. If you believe any of the earnings projections going forward, Google's P/E is only 22 -- cheap, I would say.
UPDATE: GOOG closed at $464.19 down $22.25 for the day.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I do not own shares of GOOG.
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Reader Comments (Page 1 of 1)
2-26-2008 @ 2:25PM
HM2 RSR said...
I could have bought Goog at $108 when it first went public but I didn't think it would go up very much. I watched it rise to over $700 and thought what a sap I was for not buying it. When it came down to $600, I bought. When It came down to $500, I bought. Now I can see I really am a sap.
2-26-2008 @ 5:05PM
gumbo koontz said...
All you write about is short term . What is Google's long term plans?? Google hired the best brains even some from Microsoft. Google is talking about open standards and all that. What does it really mean? Freebies? What is Google really aiming to sell in the coming years?? We are clueless, right?
2-26-2008 @ 6:22PM
Sheldon L said...
Yes, that may be the case.